The Experience Economy by B

Welcome to the Experience Economy by B. Joseph Pine II and James H. Gilmore

Harvard Business Review Reprint 98407 HarvardBusinessReview

JULY–AUGUST 1998

Reprint Number c.k. Prahalad AND THE END OF CORPORATE IMPERIALISM 98408 Kenneth Lieberthal

Linda hill and LEADERSHIP WHEN THERE IS NO ONE TO ASK: 98402 Suzy wetlaufer AN INTERVIEW WITH ENI’S FRANCO BERNABE

B. joseph pine II and WELCOME TO THE EXPERIENCE ECONOMY 98407 James h. Gilmore

Robin Cooper and THE PROMISE–AND PERIL–OF INTEGRATED 98403 Robert s. kaplan COST SYSTEMS

Thomas h. davenport PUTTING THE ENTERPRISE INTO THE 98401 ENTERPRISE SYSTEM

Nigel Nicholson HOW HARDWIRED IS HUMAN BEHAVIOR? 98406

Regina fazio Maruca HBR CASE STUDY HOW DO YOU MANAGE AN OFF-SITE TEAM? 98405

Durward k. Sobek ii, ideas at work Jeffrey k. liker, and ANOTHER LOOK AT HOW TOYOTA INTEGRATES 98409 Allen C. ward PRODUCT DEVELOPMENT

Timothy A. Luehrman manager’s tool kit INVESTMENT OPPORTUNITIES AS REAL OPTIONS: 98404 GETTING STARTED ON THE NUMBERS introduction by perspectives richard l. nolan CONNECTIVITY AND CONTROL IN THE YEAR 2000 98411 AND BEYOND

DAVID Warsh BOOKS IN REVIEW WHAT DRIVES THE WEALTH OF NATIONS? 98410 As goods and services become commoditized, the customer experiences that companies create will matter most. Welcome to the Experience Economy By B. Joseph Pine II and James H. Gilmore

ow do economies change? The make the birthday cake nor even throw the entire history of economic progress party. Instead, they spend $100 or more to H can be recapitulated in the four- “outsource” the entire event to Chuck E. stage evolution of the birthday cake. As a Cheese’s, the Discovery Zone, the Mining vestige of the agrarian economy, mothers Company, or some other business that made birthday cakes from scratch, mixing stages a memorable event for the kids – and farm commodities (ﬂour, sugar, butter, and often throws in the cake for free. Welcome eggs) that together cost mere dimes. As the to the emerging experience economy. goods-based industrial economy advanced, Economists have typically lumped expe- moms paid a dollar or two to Betty Crocker riences in with services, but experiences for premixed ingredients. Later, when the are a distinct economic offering, as different service economy took hold, busy parents from services as services are from goods. To- ordered cakes from the bakery or grocery day we can identify and describe this fourth store, which, at $10 or $15, cost ten times economic offering because consumers un- as much as the packaged ingredients. Now, questionably desire experiences, and more in the time-starved 1990s, parents neither and more businesses are responding by explicitly designing and promoting them. As B. Joseph Pine II and James H. Gilmore are services, like goods before them, increas- cofounders of Strategic Horizons LLP, based in ingly become commoditized – think of Cleveland, Ohio. They are coauthors of The long-distance telephone services sold solely Experience Economy: Work Is Theatre and on price – experiences have emerged as the Every Business a Stage, to be published by the Harvard Business School Press in April 1999. next step in what we call the progression of They are the authors of “The Four Faces of Mass economic value. (See the exhibit “The Pro- Customization” (HBR January–February 1997) gression of Economic Value.”) From now and can be reached at pine&gilmore@cus- on, leading-edge companies – whether they tomization.com. sell to consumers or businesses – will ﬁnd

however, they will be compelled to upgrade their The Progression of Economic Value offerings to the next stage of economic value. The question, then, isn’t whether, but when – and how – to enter the emerging experience economy. An early look at the characteristics of experiences and Differentiated Stage the design principles of pioneering experience experiences stagers suggests how companies can begin to answer this question.

Deliver Competitive services Staging Experiences that Sell Position To appreciate the difference between services and Make goods experiences, recall the episode of the old television show Taxi in which Iggy, a usually atrocious (but fun-loving) cab driver, decided to become the best Extract taxi driver in the world. He served sandwiches and commodities Undifferentiated drinks, conducted tours of the city, and even sang Market Premium Frank Sinatra tunes. By engaging passengers in a Pricing way that turned an ordinary cab ride into a memorable event, Iggy created something else entirely – a distinct economic offering. The experience of that the next competitive battleground lies in stag- riding in his cab was more valuable to his customers ing experiences. than the service of being transported by the cab – An experience is not an amorphous construct; it and in the TV show, at least, Iggy’s customers hap- is as real an offering as any service, good, or com- pily responded by giving bigger tips. By asking to go modity. In today’s service economy, many compa- around the block again, one patron even paid more nies simply wrap experiences around their tradi- for poorer service just to prolong his enjoyment. tional offerings to sell them better. To realize the The service Iggy provided – taxi transportation – full beneﬁt of staging experiences, however, busi- was simply the stage for the experience that he was nesses must deliberately design engaging experi- really selling. ences that command a fee. This transition from An experience occurs when a company intention- selling services to selling experiences will be no ally uses services as the stage, and goods as props, to easier for established companies to undertake and engage individual customers in a way that creates weather than the last great economic shift, from a memorable event. Commodities are fungible, the industrial to the service economy. Unless com- goods tangible, services intangible, and experiences panies want to be in a commoditized business, memorable. (See the chart “Economic Distinc-

Economic Distinctions

Economic Offering Commodities Goods Services Experiences Economy Agrarian Industrial Service Experience Economic Function Extract Make Deliver Stage Nature of Offering Fungible Tangible Intangible Memorable Key Attribute Natural Standardized Customized Personal Method of Stored in bulk Inventoried after Delivered on Revealed over Supply production demand a duration Seller Trader Manufacturer Provider Stager Buyer Market User Client Guest Factors of Demand Characteristics Features Beneﬁts Sensations

98 harvard business review July–August 1998 welcome to the experience economy tions.”) Buyers of experiences – we’ll follow the vice: An Interview with British Airways’ Sir Colin lead of experience-economy pioneer Walt Disney Marshall,” HBR November–December 1995.) The and call them “guests” – value what the company company uses its base service (the travel itself) as reveals over a duration of time. While prior eco- the stage for a distinctive en route experience – one nomic offerings – commodities, goods, and services – that attempts to transform air travel into a respite are external to the buyer, experiences are inher- from the traveler’s normally frenetic life. ently personal, existing only in the mind of an indi- Neither are experiences only for consumer in- vidual who has been engaged on an emotional, dustries. Companies consist of people, and busi- physical, intellectual, or even spiritual level. Thus, ness-to-business settings also present stages for no two people can have the same experience, be- experiences. For example, a Minneapolis computer- cause each experience derives from the interaction installation and repair company calls itself the between the staged event (like a theatrical play) and Geek Squad. Its “special agents” costume them- the individual’s state of mind. selves in white shirts with thin black ties and pocket Experiences have always been at the heart of the protectors, carry badges, drive old cars, and turn a entertainment business – a fact that Walt Disney humdrum activity into a memorable encounter. and the company he founded have creatively ex- Similarly, many companies hire theater troupes – ploited. But today the concept of selling an enter- like the St. Louis-based trainers One World Music, tainment experience is taking root in businesses far facilitators of a program called Synergy through removed from theaters and amusement parks. New technologies, in particular, encourage whole new genres Today the concept of selling of experience, such as interactive games, Internet chat rooms and multi- experiences is spreading beyond player games, motion-based simula- tors, and virtual reality. The growing theaters and theme parks. processing power required to render ever-more immersive experiences now drives demand for the goods and services of Samba – to turn otherwise ordinary meetings into the computer industry. In a speech made at the improvisational events that encourage breakthrough November 1996 COMDEX computer trade show, thinking. Intel chairman Andrew Grove declared, “We need Business-to-business marketers increasingly cre- to look at our business as more than simply the ate venues as elaborate as any Disney attraction in building and selling of personal computers. Our which to sell their goods and services. In June 1996, business is the delivery of information and lifelike Silicon Graphics, for example, opened its Visionar- interactive experiences.” ium Reality Center at corporate headquarters in At theme restaurants such as the Hard Rock Mountain View, California, to bring customers and Cafe, Planet Hollywood, or the House of Blues, the engineers together in an environment where they food is just a prop for what’s known as “eatertain- can interact with real-time, three-dimensional ment.” And stores such as Niketown, Cabella’s, product visualizations. Customers can view, hear, and Recreational Equipment Incorporated draw and touch – as well as drive, walk, or ﬂy – through consumers in by offering fun activities, fascinating myriad product possibilities. “This is experiential displays, and promotional events (sometimes computing at its ultimate, where our customers labeled “shoppertainment” or “entertailing”). can know what their products will look like, sound But experiences are not exclusively about enter- like, feel like before manufacturing,” said then tainment; companies stage an experience whenever chairman and CEO Edward McCracken. they engage customers in a personal, memorable way. In the travel business, former British Airways chairman Sir Colin Marshall has noted that the You Are What You Charge For “commodity mind-set” is to “think that a business Notice, however, that while all of these companies is merely performing a function – in our case, trans- stage experiences, most are still charging for their porting people from point A to point B on time and goods and services. Companies generally move at the lowest possible price.” What British Airways from one economic stage to the next in incremental does, according to Sir Colin, is “to go beyond the steps. In its heyday in the 1960s and 1970s, IBM’s function and compete on the basis of providing an slogan was “IBM Means Service,” and the computer experience.” (See “Competing on Customer Ser- manufacturer indeed lavished services – for free – harvard business review July–August 1998 99 welcome to the experience economy

on any company that would buy its hardware Movie theaters already charge admission to see goods. It planned facilities, programmed code, inte- featured films, but Jim Loeks, part-owner of the grated other companies’ equipment, and repaired Star theater complex in Southfield, Michigan, told its own machines; its service offerings over- Forbes magazine that “it should be worth the price whelmed the competition. But eventually IBM had of the movie just to go into the theater.” Star to charge customers for what it had been giving charges 3 million customers a year 25% higher ad- away for free, when a Justice Department suit re- mission for a movie than a local competitor does quired the company to unbundle its hardware and because of the fun-house experience it provides. Soon, perhaps, with 65,000 square feet of restaurants and stores being Companies should think about added to the complex, Star will charge its customers admission just to get what they would do differently into the complex. Some retailers already border on the if they charged admission. experiential. At the Sharper Image or Brookstone, notice how many people play with the gadgets, listen to minia- software. The government order notwithstanding, turized stereo equipment, sit in massage chairs, and IBM couldn’t afford to continue to meet increasing then leave without paying for what they valued, customer-service demands without explicitly namely, the experience. Could these stores charge charging for them. Services, it turned out, were the admission? Not as they are currently managed. But company’s most valued offerings. Today, with its if they did charge an admission fee, they would be mainframe computers long since commoditized, forced to stage a much better experience to attract IBM’s Global Services unit grows at double-digit paying guests. The merchandise mix would need to annual rates. The company no longer gives away its change more often – daily or even hourly. The stores services to sell its goods. In fact, the deal is re- would have to add demonstrations, showcases, versed: the company will buy its clients’ hardware contests, and other attractions to enhance the cus- if they’ll contract with Global Services to manage tomer experience. their information systems. IBM still manufactures With its Niketown stores, Nike is almost in the computers, but now it’s in the business of providing experience business. To avoid alienating its exist- services. ing retail channels, Nike created Niketown as a It’s an indication of the maturity of the service merchandising exposition. It’s ostensibly for economy that IBM and other manufacturers now show – to build the brand image and stimulate buy- make greater profits from the services than from ing at other retail outlets – not for selling. If that is the goods they provide. General Electric’s GE Cap- so, then why not explicitly charge customers for ital unit and the financial arms of the Big Three experiencing Niketown? Would people pay? People automakers are cases in point. Likewise, it’s an in- have already queued to enter the Niketown on dication of the immaturity of the experience econ- Chicago’s Michigan Avenue. An admission fee omy that most companies providing experiences – would force Nike to stage more engaging events like the Hard Rock Cafe, the Geek Squad, or Silicon inside. The stores might actually use the basketball Graphics – don’t yet explicitly charge for the events court, say, to stage one-on-one games or rounds of that they stage. horse with National Basketball Association play- No company sells experiences as its economic ers. Afterward customers could buy customized offering unless it actually charges guests an admis- Nike T-shirts, commemorating the date and score sion fee. An event created just to increase customer of events – complete with an action photo of the preference for the commoditized goods or services winning hoop. There might be more interactive that a company actually sells is not an economic kiosks for educational exploration of past athletic offering. But even if a company rejects (for now) events. Virtual reality machines could let you, as charging admission to events that it stages, its man- Nike’s advertising attests, be Tiger Woods. Nike agers should already be asking themselves what could probably generate as much admission-based they would do differently if they were to charge ad- revenue per square foot from Niketown as the Walt mission. The answers will help them see how their Disney Company does from its entertainment company might begin to move forward into the ex- venues – and as Disney should (but does not) yield perience economy, for such an approach demands from its own retail stores. For the premier company the design of richer experiences. of the experience economy, Disney’s specialty re-

100 harvard business review July–August 1998 welcome to the experience economy tailing outside of its own theme parks disappoints. business companies will need to do the same, es- Its mall stores aren’t much different from anyone sentially charging customers to sell to them. Dia- else’s, precisely because Disney doesn’t charge ad- mond Technology Partners for instance, stages the mission to them – and so doesn’t bother creating Diamond Exchange, a series of forums that help the extraordinary experiences it so expertly creates members explore the digital future. Current and elsewhere. potential clients pay tens of thousands of dollars An entrepreneur in Israel has entered the experi- annually to attend because what they gain – fresh ence economy with the opening of Cafe Ke’ilu, insights, self-discovery, and engaging interactions – which roughly translates as “Cafe Make Believe.” is worth it. No one minds that in staging the event, Manager Nir Caspi told a reporter that people come Diamond greatly improves its chances of selling to cafés to be seen and to meet people, not for the follow-up consulting work. food; Cafe Ke’ilu pursues that observation to its log- ical conclusion. The establishment serves its customers plates and mugs that are empty and charges The Characteristics of Experiences guests $3 during the week and $6 on weekends for Before a company can charge admission, it must de- the social experience. sign an experience that customers judge to be worth Charging admission – requiring customers to pay the price. Excellent design, marketing, and delivery for the experience – does not mean that companies will be every bit as crucial for experiences as they have to stop selling goods and services. Disney gen- are for goods and services. Ingenuity and innovation erates significant profits from parking, food, and will always precede growth in revenue. Yet experi- other service fees at its theme parks as well as from ences, like goods and services, have their own dis- the sale of memorabilia. But without the staged ex- tinct qualities and characteristics and present their periences of the company’s theme parks, cartoons, own design challenges. movies, and TV shows, customers would have One way to think about experiences is across two nothing to remember – and Disney would have no dimensions. The first corresponds to customer par- characters to exploit. ticipation. At one end of the spectrum lies passive In the full-fledged experience economy, retail participation, in which customers don’t affect the stores and even entire shopping malls will charge performance at all. Such participants include sym- admission before they let a consumer even set foot phony-goers, for example, who experience the in them. Some shopping malls, in fact, already do event as observers or listeners. At the other end of charge admission. We’re not thinking of the Mall of the spectrum lies active participation, in which America outside of Minneapolis, which contains an customers play key roles in creating the perfor- amusement park; it charges for the rides, but the mance or event that yields the experience. These shopping is still free. We’re referring to the Gilroy participants include skiers. But even people who Garlic Festival in California, the Minnesota Renaissance Festival, the Kitchener-Waterloo Oktoberfest Some companies will eventually in Ontario, Canada, and other sea- sonal festivals that are really outdoor be like trade shows, charging shopping malls and do indeed charge admission. Consumers judge them customers to sell to them. worth the fees because the festival operators script distinctive experiences around enticing themes, as well as stage activities turn out to watch a ski race are not completely pas- that captivate customers before, after, and while sive participants; simply by being there, they con- they shop. With nearly every customer leaving tribute to the visual and aural event that others with at least one bag of merchandise, these festival experience. experiences clearly capture shopping dollars that The second dimension of experience describes otherwise would be spent at traditional malls and the connection, or environmental relationship, retail outlets. that unites customers with the event or perfor- The business equivalent of a shopping mall is a mance. At one end of the connection spectrum lies trade show – a place for finding, learning about, and, absorption, at the other end, immersion. People if a need is met, purchasing exhibitors’ offerings. viewing the Kentucky Derby from the grandstand Trade-show operators already charge admission to can absorb the event taking place beneath and in the experiences they create; individual business-to- front of them; meanwhile, people standing in the harvard business review July–August 1998 101 welcome to the experience economy

infield are immersed in the sights, sounds, and process of exploration, scripting, and staging – capa- smells that surround them. Furiously scribbling bilities that aspiring experience merchants will notes while listening to a physics lecture is more need to master. absorbing than reading a textbook; seeing a film at the theater with an audience, large screen, and stereophonic sound is more immersing than watch- Designing Memorable Experiences ing the same film on video at home. We expect that experience design will become as We can sort experiences into four broad cate- much a business art as product design and process gories according to where they fall along the spectra design are today. Indeed, design principles are al- of the two dimensions. (See the exhibit “The Four ready apparent from the practices of and results Realms of an Experience.”) The kinds of experi- obtained by companies that have (or nearly have) ences most people think of as entertainment – advanced into the experience economy. We have watching television, attending a concert – tend to identified five key experience-design principles. be those in which customers participate more pas- Theme the experience. Just hear the name of any sively than actively; their connection with the “eatertainment” restaurant – Hard Rock Cafe, event is more likely one of absorption than of im- Planet Hollywood, or the Rainforest Cafe, to name mersion. Educational events – attending a class, a few – and you instantly know what to expect taking a ski lesson – tend to involve more active when you enter the establishment. The proprietors participation, but students (customers, if you will) have taken the first, crucial step in staging an expe- are still more outside the event than immersed in rience by envisioning a well-defined theme. One the action. Escapist experiences can teach just as poorly conceived, on the other hand, gives cus- well as educational events can, or amuse just as well tomers nothing around which to organize the im- as entertainment, but they involve greater customer pressions they encounter, and the experience yields immersion. Acting in a play, playing in an orches- no lasting memory. An incoherent theme is like tra, or descending the Grand Canyon involve both Gertrude Stein’s Oakland: “There is no there there.” active participation and immersion in the experi- Retailers often offend the principle. They talk of ence. If you minimize the customers’ active partici- “the shopping experience” but fail to create a pation, however, an escapist event becomes an ex- theme that ties the disparate merchandising pre- perience of the fourth kind – the esthetic. Here sentations together into a staged experience. customers or participants are immersed in an activ- Home-appliance and electronics retailers in partic- ity or environment, but they themselves have little or no effect on it – like a tourist who merely views the The Four Realms of an Experience Grand Canyon from its rim or like a visitor to an art gallery. Absorption Generally, we find that the richest experiences – such as going to Disney World or gambling in a Las Vegas casino – encompass aspects of all four realms, forming a “sweet spot” around the area where the spectra Entertainment Educational meet. But still, the universe of possible experiences is vast. Eventually, the most significant question man- Passive Active agers can ask themselves is “What participation participation specific experience will my company offer?” That experience will come to Esthetic Escapist define their business. Experiences, like goods and services, have to meet a customer need; they have to work; and they have to be deliverable. Just as goods and services result from an iterative process of research, design, and development, Immersion experiences derive from an iterative

102 harvard business review July–August 1998 welcome to the experience economy ular show little thematic imagination. Row upon must support the theme, and none should be incon- row of washers and dryers and wall after wall of re- sistent with it. frigerators accentuate the sameness of different George Harrop, founder of Barista Brava, a fran- companies’ stores. Shouldn’t there be something chised chain of coffee bars based in Washington, distinctive about an establishment called Circuit D.C., developed the company’s theme of “the mar- City, for example? riage of Old-World Italian espresso bars with fast- Consider the Forum Shops in Las Vegas, a mall paced American living.” The interior decor sup- that displays its distinctive theme – an ancient ports the Old World theme, and the carefully Roman marketplace – in every detail. The Simon designed pattern of the floor tiles and counters en- DeBartolo Group, which developed the mall, fulfills this motif through a panoply of architectural effects. Tocreate the desired impression, These include marble floors, stark white pillars, “outdoor” cafés, living companies must provide cues that trees, flowing fountains – and even a painted blue sky with fluffy white affirm the nature of the experience. clouds that yield regularly to simulat- ed storms, complete with lightning and thunder. Every mall entrance and every store- courages customers to line up without the usual front is an elaborate Roman re-creation. Every hour signage or ropes that would detract from that inside the main entrance, statues of Caesar and theme. The impressions convey quick service in a other Roman luminaries come to life and speak. soothing setting. Furthermore, Harrop encourages “Hail, Caesar!” is a frequent cry, and Roman centu- baristas to remember faces so that regular cus- rions periodically march through on their way to tomers are handed their usual order without even the adjacent Caesar’s Palace casino. The Roman having to ask. theme even extends into some of the shops. A jew- Even the smallest cue can aid the creation of a elry store’s interior, for instance, features scrolls, unique experience. When a restaurant host says, tablets, Roman numerals, and gold draperies. The “Your table is ready,” no particular cue is given. But theme implies opulence, and the mall’s 1997 sales – when a Rainforest Cafe host declares, “Your adven- more than $1,000 per square foot, compared with ture is about to begin,” it sets the stage for some- a typical mall’s sales of less than $300 – suggest that thing special. the experience works. It’s the cues that make the impressions that cre- An effective theme is concise and compelling. It ate the experience in the customer’s mind. An ex- is not a corporate mission statement or a marketing perience can be unpleasant merely because some tag line. It needn’t be publicly articulated in writ- architectural feature has been overlooked, under- ing. But the theme must drive all the design ele- appreciated, or uncoordinated. Unplanned or incon- ments and staged events of the experience toward sistent visual and aural cues can leave a customer a unified story line that wholly captivates the cus- confused or lost. Have you ever been unsure how to tomer. Educational Discoveries and Professional find your hotel room, even after the front-desk staff Training International of Orem, Utah, stage a day- provided detailed directions? Better, clearer cues long course on basic accounting skills to nonfinan- along the way would have enhanced your experi- cial managers. Their exquisitely simple theme – ence. Standard Parking of Chicago decorates each running a lemonade stand – turns learning into an floor of its O’Hare Airport garage with icons of dif- experience. Students use real lemons and lemon- ferent Chicago sports franchises – the Bulls on one ade, music, balloons, and a good deal of ballyhoo floor, the White Sox on another, and so forth. And while they create a corporate financial statement. each level has its own signature song wafting The theme unifies the experience in the students’ through it. “You never forget where you parked,” minds and helps make the learning memorable. one Chicago resident remarked, which is precisely Harmonize impressions with positive cues. the experience a traveler wants after returning from While the theme forms the foundation, the experi- a week of travel. ence must be rendered with indelible impressions. Eliminate negative cues. Ensuring the integrity Impressions are the “takeaways” of the experience; of the customer experience requires more than the they fulfill the theme. To create the desired impres- layering on of positive cues. Experience stagers also sions, companies must introduce cues that affirm must eliminate anything that diminishes, contra- the nature of the experience to the guest. Each cue dicts, or distracts from the theme. Most constructed harvard business review July–August 1998 103 welcome to the experience economy

spaces – malls, offices, buildings, or airplanes – are similar items that don’t represent an experience. littered with meaningless or trivial messages. A Rolling Stones concert-goer, for example, will While customers sometimes do need instructions, pay a premium for an official T-shirt emblazoned too often service providers choose an inappropriate with the date and city of the concert. That’s because medium or message form. For example, trash bins the price points are a function less of the cost of goods at fast-food facilities typically display a “Thank than of the value the buyer attaches to remember- You” sign. True, it’s a cue to customers to bus their ing the experience. own trays, but it also says, “No service here,” a If service businesses like airlines, banks, grocery negative reminder. Experience stagers might, stores, and insurance companies find no demand instead, turn the trash bin into a talking, garbage- for memorabilia, it’s because they do not stage en- eating character that announces its gratitude when gaging experiences. But if these businesses offered themed experiences layered with positive cues and devoid of negative cues, If airlines truly sold experiences, their guests would want and would pay for memorabilia to commemorate more passengers would actually their experiences. (If guests didn’t want to, it probably would mean the shop in the seat-pocket catalogs experience wasn’t great.) The special agents of the Geek Squad, for exam- for mementos of their flight. ple, stage such a distinctive computer- repair experience that customers buy T-shirts and lapel pins from the com- the lid swings open. Customers get the same mes- pany’s Web site. If airlines truly were in the experi- sage but without the negative cue, and self-busing ence-staging business, more passengers would becomes a positive part of the eating experience. actually shop in those seat-pocket catalogs for ap- The easiest way to turn a service into an experi- propriate mementos. Likewise, mortgage loans ence is to provide poor service – thus creating a would inspire household keepsakes; grocery check- memorable encounter of the unpleasant kind. out lanes would stock souvenirs in lieu of nickel- “Overservicing” in the name of customer intimacy and-dime impulse items; and perhaps even insur- can also ruin an experience. Airline pilots interrupt ance policy certificates would be considered suitable customers who are reading, talking, or napping to for framing. announce, “Toledo is off to the right side of the air- Engage all five senses. The sensory stimulants craft.” At hotels, front-desk personnel interrupt that accompany an experience should support and face-to-face conversations with guests to field tele- enhance its theme. The more senses an experience phone calls. In the guestrooms, service reminders engages, the more effective and memorable it can clutter end tables, dressers, and desktops. (Hide be. Smart shoeshine operators augment the smell of them away and housekeeping will replace these an- polish with crisp snaps of the cloth, scents and noyances the next morning.) Eliminating negative sounds that don’t make the shoes any shinier but do cues – by transmitting pilots’ offhand announce- make the experience more engaging. Savvy hair ments through headsets instead of speakers, by as- stylists shampoo and apply lotions not simply be- signing off-stage personnel to answer phones, and cause the styling requires it but because they add by placing guest information on an interactive tele- more tactile sensations to the customer experience. vision channel – creates a more pleasurable customer Similarly, grocery stores pipe bakery smells into experience. the aisles, and some use light and sound to simulate Mix in memorabilia. Certain goods have always thunderstorms when misting their produce. been purchased primarily for the memories they The mist at the Rainforest Cafe appeals serially convey. Vacationers buy postcards to evoke a trea- to all five senses. It is first apparent as a sound: sured sight, golfers purchase a shirt or cap with an Sss-sss-zzz. Then you see the mist rising from the embroidered logo to recall a course or round, and rocks and feel it soft and cool against your skin. teenagers obtain T-shirts to remember a rock con- Finally, you smell its tropical essence, and you taste cert. They purchase such memorabilia as a physical (or imagine that you do) its freshness. What you reminder of an experience. can’t be is unaffected by the mist. People already spend tens of billions of dollars Some cues heighten an experience through a sin- every year on memorabilia. These goods generally gle sense affected through striking simplicity. The sell at price points far above those commanded by Cleveland Bicentennial Commission spent $4 mil-

104 harvard business review July–August 1998 welcome to the experience economy lion to illuminate eight automobile and railroad paying for the event. More recently, the Rainforest bridges over the Cuyahoga River near a nightspot Cafe and Planet Hollywood have encountered trou- area called the Flats. No one pays a toll to view or ble because they have failed to refresh their experi- even to cross these illuminated bridges, but the dra- ences. Guests ﬁnd nothing different from one visit matically lighted structures are a prop that city to the next. Disney, on the other hand, avoids stale- managers hope will help attract tourist dollars by ness by frequently adding new attractions and even making a trip to downtown Cleveland a more mem- whole parks such as the Animal Kingdom, which orable nighttime experience. opened in the spring of 1998. Not all sensations are good ones, and some com- As the experience economy unfolds, more than a binations don’t work. Bookstore designers have dis- few experience stagers will exit the business. It’s covered that the aroma and taste of coffee go well hard to imagine, for example, that every one of the with a freshly cracked book. But Duds n’ Suds went scores of theme-based restaurants operating today bust attempting to combine a bar and a coin-oper- will last into the millennium. Recall that once ated laundromat. The smells of phosphates and there were more than 100 automakers in eastern hops, apparently, aren’t mutually complementary. Michigan and more than 40 cereal makers in west- ern Michigan. Now only the Big Three automakers in Detroit and the Kellogg Company in Battle Entering the Experience Economy Creek remain. The growth of the industrial econ- Using these ﬁve design principles, of course, is no omy and the service economy came with the prolif- guarantee of success; no one has repealed the laws eration of offerings – goods and services that didn’t of supply and demand. Companies that fail to pro- exist before imaginative designers and marketers vide consistently engaging experiences, overprice invented and developed them. That’s also how the their experiences relative to the value perceived, or experience economy will grow: through the “gales overbuild their capacity to stage them will of of creative destruction,” as the economist Joseph course see pressure on demand, pricing, or both. Schumpeter termed it – that is, business innova- One stalwart of the children’s birthday-party cir- tion, which threatens to render irrelevant those cuit, Discovery Zone, has had a rough few years who relegate themselves to the diminishing world because of inconsistent experience staging, poorly of goods and services. maintained games, and little consideration of the experience received by adults, who are, after all, Reprint 98407 To place an order, call 1-800-988-0886.

harvard business review July–August 1998 105 Harvard Business Review

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